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RBItweaksbaseraterules:Canbanksstillavoidcuttingrates?Moneycontrol.com

heReserveBank'smoveaskingbankstonotifythebaserate,ortheminimumlendingrate,atleastonceinevery
threemonthsbasedoncostoffundsisseenasanudgetolenderstopassonchangesinpolicyrateto

borrowers.Theapexbankhadcutreporateby25bpslastweekwhentheworldwasleastexpectingit.
Willstatelendersbitethebulletandpassontheratecutbenefitstocustomers?InaninterviewtoCNBCTV18,P
PradeepKumar,MDCorporateBanking,SBI

andRamSangapure,ExecutiveDirectoratPunjabNationalBank

clarifytheirpositions.
BelowisthetranscriptofPPradeepKumarandRamSangapure'sinterviewwithLathaVenkateshandSonia
ShenoyonCNBCTV18.TranscripteditedbyJhiniSinhaPhira:
Latha:Youhaveannouncedaseriesofdepositcuts,youhavenotcutyourbaserateinthelastseveralmonths.
Withthenewrules,willthatbecometough?Willyouhavetocutlendingrateswhenyoucutdepositrates?
Kumar:Idontthinkso.Ithinkonlyonesmallrulehasbeenchangedinthecomputationofbaserate.Theyhavesaid
whenforthecomputationofcostofdeposityoutaketheinterestrateonaparticulartenureofthedeposit,itshouldbe
theonewhichhasthelargestdepositbase.Asotherwisethereisnochange.Thisisonlyclarificatorycircular.Idont
thinkitisgoingtoimpactanything.
Sonia:Whatisyourownviewonthisandmoreimportantlywhenwillbigbankslikeyoursgoaheadandcut
lendingratesbecausedespitetheratecutcomingin,wehaventseenanylargebankspassitonjustyet?
Sangapure:Yes,Ithinkithasanimplicationoncomputationofbaseratetoacertainextent.Someofthebanksfor
instancehavetakenaparticularbucketwhereprobablythedepositshareisnotmuchinthetotalvolumeofdeposit.
Nowifweswitchitovertoabucketwheretheshareofadepositismuchhigherandtherateofinterestofthatbucket
istakenforacomputationofabaserateasabenchmarkratethencertainlytherewillbesomeimpactoncomputation
perse.
However,thisisnottheonlyfactorwhichaffectsthecomputationofabaserate.Thebenchmarkrateasperthe
circular,therearethreefouroptionsbeforethebank.Thisisoneoftheoptions,someofthebanksmaygofor
marginalcostofdeposit,somemaygoforanaveragecostofthedeposit.Soifbankisgoingforaveragecostofa
deposit,probablythisstipulationofReserveBankofIndia(RBI)foraparticularbucketwhichhasthelargestsharehas
noimpactsofarascomputationofbaserateisconcerned.Butthosebankswhohadtakenapplicablerateofinterestfor
aparticularbucketwherethedepositsareveryminimum,forthosebanks,certainlythiswillhaveanimplication.
Latha:Butwhatistheprevailingpractice?Whatisyourinputintothebaserate?
Sangapure:Twothreedifferentpracticesareadoptedinthebankingindustry.Somebankshavegoneforanaverage
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rateofinterestforthepreviousquarter.Theytakethatasabenchmarkrateofinterest.Somebankshavegonefora
particularbucketlike90daysto180days.
Latha:Iamaskingyou,whatdothemajorityofthebanksdo?Dotheytakedepositratesordotheytake
averagecost?
Sangapure:IwontbeabletotellyoubecauseIhaventdoneanysurveybutmostofthebankshavegoneforan
averagecostforpreviousquarter.
Latha:WhatdoyouhaveatPNB?
Sangapure:Wehaveaveragecostmethodology.Wewillreviewthatinline.
Latha:WhatisSBIsinputintothebaserate?
Kumar:IdontthinkwecandiscussitonTV.
Latha:Forthesectorasawhole,yousaidthatitwillnothaveanimpactbutforthosebankswhicharetakingdeposit
ratesasaninputintocalculatingbaserate,ifyouchangethedepositratewiththemaximumshares,onethreeyear
bucketthenlogicallyshouldnotthebaseratebeaffected?
Kumar:IthinkrecognisingthisRBIhasgivenaleewaytobankstolookattheirbaseratecomputationformula.
Earliertheysaid,youcanreviewitonlyafteraperiodoffiveyears.Nowtheyhavesaidyoucanreviewitaftera
periodofthreeyears.Thelasttimebanksdecidedonthebaserateformulawasin2010soitismorethanthreeyears
nowbankswillcertainlyhavearelookattheformulatheyareusingforcomputingbaserates.Bankswhichhave
peggedtheirratetopossiblytothedepositrateofaparticulartenurewillhaveanopportunitytorelookatthebaserate
formula.ThatiswhattheRBIscircularisallowingthebankstodohavearelookatthecomputationofthebaserate
formulaandtheinputsthataregoingintothecalculationofit.
Latha:Isthatwhatyouexpectisgoingtohappen?Mostofthebankswithdepositrateastheinputinto
calculatingthebaseratewillhaveameetingandwillchangeittoaveragecost,isthatthemostlikelyoutcome?
Kumar:Ithinkallbankswillreviewtheirbaserateformulanotonlybankswhicharepeggedtheirbaseratetoa
depositrateofaparticulartenure.Ithinkthisgivesanopportunityforallbankstohavearelookattheirbaserate
computationformula.IamsureeverybanksAssetLiabilityCommittee(ALCO)willsitanddecidewhattodowithit
nowthattheyhaveanoptiontoreviewitbeforetheendoffiveyears.Nowthateverybankhascompletedthreeyears
becausewediditinto2010,IamsureeverybanksALCOwillhavearelookattheformulaforbaseratecomputation.

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